Has bank lobbying de-fanged FOFA?

The single greatest policy challenge in financial markets is the hegemony of the banks.

A fluster over taxpayer support for Qantas, though still a worthy debate, is akin to the crowd distracted by an old codger busking on the mouth organ while the Rolling Stones, admittedly a group of old codgers themselves, play to two men and a dog down the street.

A paper has found that subsidies to Australian banks from the government exceeded $11 billion. Photo: Bloomberg

So, it is timely that a paper by John Watson of Margate Financial Research Solutions has found subsidies to the banks from the Australian government exceed $11 billion. We will get to the breakdown of these assorted indulgences shortly.

Suffice to say that the proposed amendments to the Future of Financial Advice laws, which effectively roll back consumer protections, will only increase the supremacy of the big banks. Along with AMP, the investment platforms of Commonwealth Bank, Westpac, National Australia Bank and ANZ already control 80 per cent of the market for financial advice.

The amendments, in their present form, may well reduce red tape but they can only entrench and enhance this control. They will lift the profits of the banks at the expense of the savings and investment returns of their customers.

A partner of plaintiff law firm Slater & Gordon told this reporter last week the FoFA amendments would precipitate a new generation of scams and legal claims. Others say they will bring back the ''boiler rooms''. Hidden commissions and conflicted remuneration will flourish like never before.

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Enticed by commission, the trusted bank teller can now be greased to flog in-house financial product to the customers - as long as they are deemed to be providing ''general advice''.

Industry Super Australia reckons the FoFA rollback will bring a wave of financial collapses, similar to those of the financial crisis, which demolished billions in savings.

Why, then, the changes? Why is the government handing this gift to the already mollycoddled banks on a platter?

We can only surmise that the FoFA amendments are the result of lobbying. Apart from the banks' various peak bodies, there are few in favour. Even the Financial Planning Association is leery of the changes.

In breaking down the assorted taxpayer subsidies already afforded the banks - which don't count the leg-up from the sovereign guarantees on deposits and wholesale funding during the financial crisis - John Watson found the taxpayer-subsidised cost advantage from the Reserve Bank's bailout fund (Committed Liquidity Facility) amounts to roughly 150 basis points on current market yields, or $4.5 billion a year.

Further, the ''big four banks do not pay for the benefits they derive from the market-perceived implicit government support which, as the IMF noted, include lower funding costs than their competitors''.

The banks also enjoy the ''benefit of credit ratings that have been explicitly lifted two notches higher''.

The introduction of the ''covered bond'' has been ''another market-distorting development''.

''Securing their covered bonds with billions of dollars of home loans has allowed the four AA-rated (big banks) to win rare AAA ratings for their funding at the expense of unsecured lenders,'' the report found.

Since the big banks have such an advantage over even their smaller peers in raising money more cheaply, ''it is almost impossible to compete effectively against them. Size thus begets more size.''

Competition is what the financial services sector needs, not a small cabal of uber-dominant players controlling customers and prices at their whim.

Assistant Treasurer Arthur Sinodinos has argued for the carving out of ''general advice'' on the basis that it educates and informs consumers who can't afford to pay for a financial planner. This logic might be tenable if there was somebody policing the big banks, but this has become a regulation-free zone.

The corporate regulators never prosecute anybody from the big four, no matter the extent of malpractice. We have documented here a lay-down misere bank fraud detailed before a Senate inquiry, for which no prosecution has arisen.

Meanwhile, the looming Son of Wallis inquiry into the financial system - headed mostly by ex-big bankers - will be looking at all these issues.

Even if it has the fortitude and foresight to tackle this critical matter of vertical integration by the banking giants, there can be little confidence that government will do anything about it. Such is the supremacy of powerful lobby groups these days.

Nobody can deny that a strong banking system is good for the country. But what price strength when taxpayers underpin the risk? Already the loan-to-valuation ratios have spiralled back to pre-crisis levels. Risk is back - but this time it is explicitly and undeniably on the shoulders of the taxpayer.